ADP Not Liable for Bad Paychecks, Firm Tells Calif. Top Court

Calif. Supreme Court considering if employees can sue for underpayment

Ruling expected within 90 days

ADP LLC and other payroll processors shouldn’t be liable for errors that employees of other companies may claim on their paychecks, attorneys for ADP told the California Supreme Court.

Employees’ claims of improper wages belong with the employer, Robert Lewis, a partner with Morgan, Lewis & Bockius LLP who represents ADP, told the state’s highest court during oral argument. The California Labor Code doesn’t permit an employer to assign the duty for accurate wage statements to a third party such as ADP, Lewis said.

A ruling against the payroll and HR services provider could wreck havoc on the 1,100 payroll process service companies in California, all of whom could then be named as defendants in the thousands of wage and hour cases annually filed in the state.

The state supreme court will issue its final verdict before early spring.

“You’re saying until that claim is resolved one way or another, the payroll company just continues to churn out possible erroneous pay statements and there’s no consequence to the payroll company while this is going on,” Justice Goodwin H. Liu asked.

Payroll providers rely on the information they’re given, Lewis said. Unless or until the Legislature changes the law, the employee has no claims against ADP, which only has a contract with the employer, he said.

Third-Party Liability

Others in the payroll industry filed numerous briefs in support of ADP in the closely-watched case.

Imposing third-party liability on payroll service providers would be an end run around state law, the National Payroll Reporting Consortium and American Payroll Association said in a brief supporting ADP.

Only employers are liable for wage and other pay violations, and independent payroll service providers aren’t employers, said the trade groups, whose members include ADP, Paychex Inc., Ceridian Corp., Intuit Inc., and Wells Fargo Bank.

“If the Supreme Court affirms the appellate court’s holding regarding potential liability on those claims, it will cause a major disruption in these kinds of commonplace commercial relationships between employers and payroll companies,” Anthony Oncidi, a labor partner with Proskauer Rose LLP in Los Angeles, told Bloomberg Law.

“If employees can claim to be third-party beneficiaries to these kinds of commercial relationships, it will turn the payroll industry upside down,” Oncidi said. “There’s a basic unfairness to assigning potential liability to a company based upon a contractual obligation it didn’t even know it had.”

Underpayment Alleged

Sharmalee Goonewardene sued her former employer, travel company Altour International, for discrimination, missed overtime and breaks, wrongful termination, and other claims. She added ADP as a defendant, claiming the processor committed unfair business practices for not giving her accurate checks.

Errors found in auditing Goonewardene’s time sheets amounted to $6,144, the California Superior Court, Los Angeles, concluded in April 2017.

ADP was never Sharmalee Goonewardene’s employer, but a state appeals court ruled the payroll processor owed her a duty of care as a third-party beneficiary of the contract between Goonewardene’s employer and ADP. Goonewardene could sue ADP for breach of contract and negligent misrepresentation, the appeals court said.

No one’s claiming Altour isn’t liable, Glen Broemer, Law Offices of Glen Broemer in Jersey City, N.J., representing Goonewardene, said in a brief to the state high court.

“This is professional negligence is my part of my point,” Broemer told justices. “This is a high degree of skill” required to process payroll, which ADP touts in its promotions.

Opinions are due within 90 days of oral argument, meaning a final ruling from the court will come by March 5, 2019.